The article “Border Walls and Taxes: Bad Medicine for the Wrong Diagnosis”, by David Dapice, discusses the effects a border wall and trade limitations with Mexico may have on the US. Leaders of the recent Republican campaign promised high paying manufacturing jobs by restrictive trade with Mexico and a border wall to prevent immigration. However, these actions may have unintended consequences. A tax on goods imported from Mexico is intended to be how the border wall is funded. Yet, it will more likely be the case that US consumers bear the tax. Dapice demonstrates this with an example in the housing market. If real estate taxes increase, owners of rentals are the ones to physically pay the tax; however, renters experience that tax in the form of increased monthly rent. As the price of the Mexican imports increases, US prices will increase to offset the tax; therefore, US consumers will pay the tax.
Mexico is currently the third largest US trading partner. In turn, they also import many goods from the US, making the two economies closely tied. Dapice points out that “Mexico’s imports from the US were 80 percent of their exports to the US in 2015.” Mexico’s economy also relies heavily on trade with the US. One goal …show more content…
Given two countries and two goods, each country will have a comparative advantage in one goods. The ratio of the labor productivities of each good determines the opportunity cost. The country with the lower opportunity cost has the comparative advantage in that good. If the US and Mexico are producing auto parts and tomatoes a ratio of how many auto parts it costs to produce one unit of tomatoes, or vice versa, in each country will determine who has the comparative advantage in which good. Ricardo would suggest that the country with the lowest opportunity cost of producing auto parts should produce auto parts because they have the comparative